The Bank of Canada’s Governing Council was split on the timing of rate cuts this year when they deliberated before the March press release. But the February inflation data signaled that rate cuts should be coming soon. After all, inflation has slowed markedly along with the economy.
While the unprecedented influx of new immigrants has boosted economic activity, the overall outlook for consumer spending will be dampened by the large volume of mortgage renewals in the next two years. Many will suffer a double-digit monthly payment increase, undoubtedly dampening discretionary spending. High food prices already burden consumers. Even though food inflation has diminished, prices have not fallen.
A June rate cut is coming, and there is even a possibility of an easing in monetary policy at the April 10 meeting. The spring housing season will be buoyant. Home prices already began to rise in February. And while home sales have been weak, the sunshine might entice the pent-up supply of existing homes to the market. For every move-up and downsizing buyer, there is a new listing on the other side.
First-time homebuyers may also start to take the plunge for fear that prices will rise further. They can lock in a two- or three-year fixed-rate mortgage if they are nervous. Many have been saving their money since 2022.
The Alt-A market is also poised for a pick-up as many more alternative lenders have strong balance sheets and well-diversified portfolios and talk about creating a demand for Alt-A mortgage-backed bonds. These would be relatively high-yielding bonds with reasonable credit ratings owing to the diversity of mortgages from every province in Canada.
There will be challenges and intense competition with new digital lenders increasing for the first time in Canada—much delayed from the US market innovation. Mortgage brokers need to be experts in a much more comprehensive array of products and solutions, many of them new.
